Image scanning technology has been used to generate digital copies of documents, photographs and even physical objects. Numerous forms of scanner technology have been developed. Many of these scanner technologies employ a charge-coupled device (CCD) or a photomultiplier tube as an image sensor. These scanning devices have been coupled to computer systems that capture the data stream from the scanners' image sensor(s) into a discrete digital reproduction of the item being scanned.
The Check Clearing for the 21st Century Act (Check 21) legislation allows a recipient of a paper check (e.g., banks and other entities within the financial services industry) to create an electronic reproduction, thereby eliminating the need for further handling of the physical document. The aim of the legislation is to encourage check truncation, i.e., removing an original paper check from a collection/return process. Check truncation is the process of removing an original paper check from the collection or return process and creating a substitute check or electronic image to clear the item for payment or return. Unlike converted checks, which result in electronic funds transfer through an automated clearing house (ACH) system, substitute checks are still cleared as check items under Federal Reserve board regulations for check collection and availability of funds.
Once a check is truncated, banks and other entities can work with either the substitute check or a digital image. A substitute check is a paper image replacement document (IRD) that contains an image that accurately represent all of the information on the front and back of the original check (at the time of truncation). A substitute check also bears a magnetic ink character recognition (MICR) line with all of the MICR information from the original check. It is considered a legal copy of the check and may be used in the same way as the original. A substitute check is cleared as a check item. Alternatively, and by agreement only between the collecting and paying financial institutions, electronic check files with images containing MICR data can be exchanged via electronic delivery systems, via a process called image exchange, without creating a paper document which must be physically delivered through the check clearing process. The digital images can be exchanged between banks, savings and loan institutions (S&Ls), credit unions, servicers, clearinghouses, and the Federal Reserve.
Previously, while some banks and entities had bi-lateral agreements to exchange only images, a bank or other entity could require the presentation of the original check for clearing. Check 21 requires acceptance of a substitute check or IRD in lieu of the original paper check and imparts the same legal rights to the substitute check as the original. However, while banks and other entities may choose to exchange images electronically, they are not required to do so.